National Housing Market Outlook

Challenges Mount for First-Time Buyers

Devyn_Bachman_web

Devyn Bachman

April 20, 2018

One of our first-time home buyer team members just lost out on a home purchase, as only the top 5 bids (out of 20!) were given the opportunity to increase their offer!

Homeownership costs continue to grow faster than incomes, making homeownership more difficult. As a result, buyers—especially first-timers—are forced to make compromises when purchasing a home. Nationally, monthly housing costs for an entry-level buyer¹ rose $136 to $1,641 nationwide, a 9% increase in the last year.

In the last year, homeownership costs rose a whopping 14% in the SF Bay Area and 13% in Seattle. We believe home buyers have become overly exuberant in both of these markets. Costs rose 12% in Las Vegas, where the housing recovery has only recently picked up strength. Seattle’s entry-level homeowners now pay $2,790 per month for a home priced 20% below the median home price, more than double the $1,248 that home buyers pay in Las Vegas. In 23 of the top 31 metros, affordability is notably worse than the long-term norm, according to our proprietary Burns Affordability IndexTM².

The table below shows the monthly housing costs for an entry-level home³ in March 2018 and the increase over the last year.

In conclusion, home buyers can afford less homes today than they could one year ago. Buyers have to make tradeoffs, either delaying their purchase or looking at homes with the following characteristics:

  • a smaller square footage or lot size

  • attached homes instead of detached homes

  • locations further from work

  • older resale homes

Builders have reacted similarly, buying land further from the job centers, increasing the density per acre, and building smaller homes. This topic will be the quarterly question in our land survey this month: How far are land buyers venturing from the job centers? If you are a residential land broker and want to participate in our quarterly survey and receive the results, please contact me.

¹Entry-level home payment: We define an entry-level home as one that sold for 80% of the metro’s median sales price (resale and new combined) and calculate the mortgage payment assuming a 5% down payment and 30-year fixed payment of PITI (principal, interest, taxes and insurance) plus private mortgage insurance.

²Our Burns Affordability Index is available to clients.

³We excluded maintenance and other costs associated with owning a home, which we assume were similar one year ago and therefore have little impact.

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About The Author

Devyn Bachman
Senior Vice President, Research and Operations
Devyn analyzes emerging qualitive trends and local quantitative drivers in order to assess their impact on the housing industry. She helps manage and analyze JBREC’s proprietary home builder, real estate agent, residential land, single-family rental, fix and flip, and master plan ranking surveys.

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